- If you live in Germany you should file a tax return.
- You must declare your total worldwide income for the assessment period.
- The income tax return must be submitted by July 31 of the following year.
- When filing an individual income tax return in Germany, you can claim various private and professional expenses that can help reduce your taxes.
- You can deduct tax relief on pension contributions for the statutory pension insurance or a Rürup pension as other expenses in your tax return.
Who is liable for income tax in Germany
If you move to Germany or establish a habitual residence in Germany, you are required to pay taxes on your worldwide income. This is because an unlimited tax liability is established in Germany in both cases. However, you can still be subject to tax in Germany even if you do not reside in the country. This is known as limited tax liability, which applies if you receive income from German sources such as real estate or companies.
Who has to file a tax return in Germany?
If you live in Germany or earn income from German sources, you are required to file a tax return in Germany. However, there are some exceptions to this rule, such as when the agency that pays you already withholds taxes or when your income is below the tax-free amount.
What income must be declared in the individual income tax return?
In order to file your individual income tax return in Germany, you must declare your total worldwide income for the assessment period. In Germany, the assessment period is the calendar year, from January 1 to December 31. If you have foreign income from before you moved to Germany or after you moved out of the country within the calendar year, you must declare this income in your German annual tax return. In most cases, this income is not included in your tax base, but it is taken into account to determine your tax rate.
When must the individual income tax return be submitted at the latest?
The income tax return must be submitted by July 31 of the following year. Only if a tax advisor is involved, the deadline is extended to February 28 of the second following year.
Can my income be taxed twice?
If you have income that is subject to taxation in multiple countries, it is possible that you may be taxed on the same income in multiple jurisdictions. To avoid this situation, known as double taxation, Germany has entered into agreements with many countries to prevent double taxation of income. These agreements outline the terms under which each country will tax your income, and they are designed to ensure that you are not taxed twice on the same income.
What happens if I do not file a tax return?
If you fail to fulfill your tax obligations in Germany or do not do so on time or in full, you may be considered a tax evader. Tax evasion is a criminal offense in Germany that can result in a fine in minor cases or up to 10 years in prison in more serious cases. It is important to fulfill your tax obligations in Germany and to do so on time in order to avoid any potential consequences.
How can I save taxes?
When filing an individual income tax return in Germany, you can claim various private and professional expenses that can help reduce your taxes. There are also various tax structuring options that may be applicable to your individual situation, such as the tax classes of your spouse or partner. Even if you are not required to file a tax return, it may still be worth doing so because the average German income tax deductions in 2017 were 1,051 euros. Therefore, the effort to file a tax return can potentially be worth it in terms of tax savings.
What to send with tax return?
To reduce your individual taxes in Germany, you need to have receipts and vouchers available. While you only need to submit a few vouchers with your tax return, such as donation receipts or tax deduction certificates for taxes withheld on interest and dividends, you are required to keep all other receipts until the appeal period has ended, and the tax assessment has become final. If the tax office requests a specific recipe, and you are unable to provide it, the corresponding expenses will not be allowed. It is important to keep all receipts in case they are needed for tax purposes.
What about inheritance and gift tax?
In Germany, there is also an inheritance and gift tax that is due under certain conditions. Under certain circumstances, transactions that were known to be tax-free in your home country might trigger inheritance or gift tax when you move to Germany or away.
What about social security?
If you are moving to Germany or are being seconded by your company, or if you are engaging in cross-border activity, you need to clarify your allocation under social insurance law. It is important to do this in a timely manner to avoid unexpected additional payments, double contribution payments, or penalties and interest payments. Failing to clarify your social insurance allocation could result in unexpected financial consequences, so it is important to address this issue as soon as possible.
What tax relief on pension contributions is available?
You can reduce your individual tax by pension expenses in Germany.
Pension expenses include:
Contributions to the statutory pension insurance
Expenses for the agricultural pension fund
Expenses for occupational pension schemes
Contributions to the Rürup pension
Contributions to private pension plans such as the Riester pension plan
How can I get tax relief on pension contributions?
You can deduct tax relief on pension contributions for the statutory pension insurance or a Rürup pension as other expenses in your tax return. However, maximum amounts apply. This is an elegant and legal way to reduce your German income tax deductions.
Pension contributions are tax-deductible up to a maximum of 25,787 euros per year for single persons or 51,574 euros for married couples.
However, this amount can only be deducted from taxes on a pro rata basis, at 94 percent in 2022, with the deductible portion increasing by 2 percent each year. From 2025 on 100 percent will be recognized for tax purposes.
This is due to the so-called deferred taxation, which is being gradually switched to.
All pensions in Germany have been taxable in principle since 2005. However, the change from tax-free to taxable is an ongoing process over a long period of 35 years in total. In 2005, 50 percent of pension payments had to be taxed. This percentage increases every year and by 2040, 100 percent of pensions will be taxable.
On the other hand, the monthly contributions to the statutory pension will then be tax-free. Therefore, the deductible portion also increases from 94 percent in 2022 to 100 percent in 2025.
Income tax and pension contributions – how can I deduct the contributions?
All contributions to retirement plans are added together. If the total is greater than 25,787 euros or 51,574 euros for married couples, the calculation continues with this maximum amount of 25,046 euros. Now, the deductible percentage for the current year is applied to the contributions paid. Finally, the employer’s contribution to the statutory pension is deducted.
How do I enter pension contributions into the tax return?
Information on pension contributions must be entered in the pension expense annex. If you fill out your tax return using the official tax call, the contributions to pension schemes are automatically entered. This is because the contributions are automatically reported to the tax office by the pension insurance company.